Jacksonville, FL · Member since 2015 · 183 posts · 22 votes
In terms of the widening gap between US and Canadian house prices since 2006, this seems to be a strange economic phenomenon.
It is almost as if the US prices are artificially suppressed as both markets appear to have decoupled since 2006. However, the house price widening between Britain and the US is much worse than the widening between Canada and the US.
Tempted to say the market might have to correct in Canada but that seems to be only if you compare it to the US market. The housing markets in Britain and Spain actually moved much stronger than that of Canada compared to the US.
There has to be a variable the explains the pattern and behavior.
Investor · Century, FL · Member since 2015 · 950 posts · 603 votes
11y
I know the UK market quite well, and it is viciously over priced.
But people really don't talk about why it happened.
First of all, the Chancellor to the exchequer in 1998 raided the pension companies, so lots of people in their 40s-50s cashed out equity on their primarily home and bought property to rent out.
Secondly, through 13 years of an unchecked left government, immigration was left largely unchecked, and 5 years of a Tory government didn't bring it back in check either. This led to a shortage of housing stock.
Thirdly, building in the UK is prohibitively expensive. I have friends looking to build two homes in a very nice area at the moment. After spending tens of thousands in application fees to get planning permission, the day that the first foundation is dug for the two properties, they will owe the council another $80,000 in taxes. The council even delayed final planning application 1 extra day so that the law could change so the council could net the extra $80k.
Which means that the homes they are building won't be "entry level" $400k homes, but rather million dollar homes instead. This does not help the market in the slightest.
So building is left to developers who have to make higher and higher percentages of developments "affordable" housing, which again, forces many builders out of the business as they can't get the returns needed.
Now, anyone see any parallels to the US in all this?
Engineer · Calgary, Alberta · Member since 2015 · 16 posts · 1 vote
11y
I think it would be interesting to plot mean housing prices against mean household income as well.
Some interesting talking points regarding the consumer product price differential. For the most part, I think much of that has materialized in the past 5 years with an exceptionally strong dollar. I think many Canadians have forgotten that aspect (priced the same but a 20-30% premium due to exchange).
The housing front is a bit of a different beast though.
Investor · Century, FL · Member since 2015 · 950 posts · 603 votes
11y
I know the UK market quite well, and it is viciously over priced.
But people really don't talk about why it happened.
First of all, the Chancellor to the exchequer in 1998 raided the pension companies, so lots of people in their 40s-50s cashed out equity on their primarily home and bought property to rent out.
Secondly, through 13 years of an unchecked left government, immigration was left largely unchecked, and 5 years of a Tory government didn't bring it back in check either. This led to a shortage of housing stock.
Thirdly, building in the UK is prohibitively expensive. I have friends looking to build two homes in a very nice area at the moment. After spending tens of thousands in application fees to get planning permission, the day that the first foundation is dug for the two properties, they will owe the council another $80,000 in taxes. The council even delayed final planning application 1 extra day so that the law could change so the council could net the extra $80k.
Which means that the homes they are building won't be "entry level" $400k homes, but rather million dollar homes instead. This does not help the market in the slightest.
So building is left to developers who have to make higher and higher percentages of developments "affordable" housing, which again, forces many builders out of the business as they can't get the returns needed.
Now, anyone see any parallels to the US in all this?
Jacksonville, FL · Member since 2015 · 183 posts · 22 votes
11y
@Shields
That would depend on having access to recent and quality data sources. There seems to be graph of housing price against income here and for various countries.
I started a related thread a month ago. Canada and Australia are among the short list of countries where housing is lease affordable.
What you are seeing is not depressed U.S.A. housing prices in so much as unsustainable Canadian housing valuations w/r to household income.
If the housing prices are unsustainable in Canada, according to this, the same would have to be said for Honk Kong, Britain and Australia; unless of course the income growth in those countries exhibit a different pattern.
Rental Property Investor · Fredericton, New Brunswick · Member since 2013 · 7k+ posts · 4k+ votes
11y
@Account Closed
If you read the Economist article linked into the thread I referenced above you would see that the usual suspects are still at the top of the most expensive places to live (including a couple of cities in the U.S.A.) One surprise to many (save those in Western Canada) is that Vancouver has started to rival places like Hong Kong.
That said, being expensive does not necessarily make a place the unaffordable ... though it definitely is a factor. The affordability is related to the ration of price with respect to household income.
Jacksonville, FL · Member since 2015 · 183 posts · 22 votes
11y
The fact that house price growth in Canada generally appears to be significantly more than those in the US in the last few years does not mean that there aren't certain cities in the US were house prices are well beyond what is considered average either in US or Canada.
There are always certain segments of a market where prices are so abnormal that some might exclude such markets when trying to determine general market average to avoid skewing the data.
According to Zillow for instance, average home values in Los Altos CA is $2.6 million yet average household income in Los Altos CA is $154,000.
Trying to get get a $2.6million mortgage with a $154K income may be somewhat problematic. So bankers are likely to be forced to try to generate creative ways of financing an unafforable mortgage which often isn't a sustainable solution and/or people are likely to move elsewhere.
Apparently house values also increased by some 21% in Los Altos from last year according to Zillow which certainly isn't the national norm nor am I aware of traditional income growth being in that range here.
Jacksonville, FL · Member since 2015 · 183 posts · 22 votes
11y
There are many things that may affect house price growth rates. House prices though and price patterns is however an element/variable that just about any government is able to influence and control -- if they feel like it. So through any governments action or inaction, they may be effectively for or against any price trend. I am also not sure $400K is an 'entry level' price range for homes based on some of the average income in some of these areas.